The Draft Bill has been released by Treasury during a period of enhanced scrutiny into the corporate and financial systems in Australia. In releasing the Draft Bill the Treasurer, Josh Frydenberg, stated that the changes are intended to bring Australia “in[to] closer alignment with leading international jurisdictions”. 

The proposed changes stem from recommendations made by the ASIC Enforcement Review Taskforce which made over 50 recommendations with the Draft Bill encapsulating the majority, but not all, of the recommendations made. Amongst the key changes, the Draft Bill intends to:

  • introduce longer maximum imprisonment penalties;
  • introduce a formula to calculate financial penalties;
  • increase some financial penalties;
  • update civil penalties to increase their reach and maximum fines amount;
  • expand the infringement notice regime;
  • introduce a new dishonesty test for all Corporations Act 2001 (Cth) (Corporations Act) offences;
  • introduce relinquishment as a remedy in civil proceedings which aims to prevent the unjust enrichment of those who contravene the Corporations Act through removing the financial benefits that they have received from any wrongdoing;
  • give priority to the compensation of victims over the payment of financial penalties to regulators; and
  • clarify that reckless or intentionally dishonest actions by officers still constitute an offence where there is a positive outcome for a corporation from this contravention.

These proposals will mean significant increases to the monetary and imprisonment penalties for individuals and corporations in the financial sector. Additionally ASIC can seek to prosecute through the infringement notice procedure for a wider range of offences, which will be an easier path for them to take than via a contested prosecution.

Adequate and effective systems will be of paramount importance to financial sector businesses to provide some protection against the risk of non-compliance. However, for the wide range of strict and absolute liability offences, these systems will not reduce the penalty consequences for contraventions.

Given recent developments in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and ASIC's own taskforce findings, there is heightened community concern around the failings in the financial sector. Increased scrutiny in the financial sector by ASIC, where it can be expected to act with greater rigour, may see more prosecutions rather than enforceable undertakings or no action positions.

ASIC will be able to utilise the changes contained in the Draft Bill to push for more prosecutions, and to pursue increased penalties.

Treasury consultation is open for submissions on the Draft Bill which are due by 23 October 2018.